Are canopies and kiosks a contractor installs at a gas station a nontaxable capital improvement, or taxable — and does it matter whether the customer owns or rents the land?

Plain-English summary

Beaman Corporation, a contractor that builds service stations for oil companies, installs canopies (roof-like structures overhanging the service areas, up to 30 feet by 90 feet) and kiosks (cashier offices, rest rooms, and storage). Both are sunk in concrete footings and can only be removed by jackhammering out the concrete. It asked whether these are capital improvements for sales tax purposes.

The Department held it depends on whether the structures are installed for the property's owner or for a tenant.

• The capital-improvement test. Under § 1101(b)(9) (codifying 20 NYCRR § 527.7(a)(3)), a capital improvement (1) substantially adds value or prolongs the useful life of the real property; (2) becomes part of the real property or is permanently affixed so that removal causes material damage; and (3) is intended to be permanent. The canopies and kiosks clearly satisfy the first (value-adding) criterion.
• Installed for the owner → capital improvement. Applying the common-law fixture test (Potter v. Cromwell — annexation, adaptation to the property's use, and intended permanence), structures a landowner installs become fixtures and part of the realty, satisfying all three criteria. So they are a capital improvement.
• Installed for a tenant → presumptively removable trade fixtures. A tenant is presumed to affix things for its own temporary use, not to enhance the landlord's estate (Tifft v. Horton). Items a tenant annexes to carry on its business are trade fixtures, generally removable without substantial injury and therefore not intended as permanent — so not a capital improvement. The Department cited service-station trade-fixture cases (a greasing pit in Marnall Steel; a garage, sheds, and storage pits in Crater's Wharf; a long corrugated-iron awning in Bernheimer v. Adams).
• The tenant presumption can be reversed. Facts can defeat the presumption. In Flah's of Syracuse, lease terms provided that title to improvements would immediately vest in the landlord and become part of the premises — so a tenant's trade fixtures were held to be a capital improvement (TSB-H-81(9)S).

Tax consequences:

• Capital improvement: the contractor pays tax on its materials but does not collect tax on its charge to the customer (§§ 1101(b)(4), 1105(c)(3)(iii), 1105(c)(5); 20 NYCRR § 527.7(a)(3)).
• Not a capital improvement: the contractor's charges for both the property and the installation are taxable (§§ 1105(a), 1105(c)(3)); it may buy the materials for resale with a Contractor Exempt Purchase Certificate (Form ST-120.1).
• Paperwork to stop collecting: to be relieved of collecting tax when a customer asserts the job is a capital improvement, the contractor must take a Certificate of Capital Improvement (Form ST-124) (§ 1132(c); 20 NYCRR § 532.4(f)).

What this means for you

Owner vs. tenant can flip the tax result on the identical structure. The same canopy or kiosk is a nontaxable capital improvement for a landowner but a taxable trade fixture for a tenant — because the law presumes tenants install for their own temporary business use.

Lease language can override the tenant presumption. If the lease vests title to the improvements in the landlord and makes them part of the premises (as in Flah's), a tenant's installation can become a capital improvement. Read the lease before deciding how to bill.

Get the ST-124 to stop collecting tax. A contractor is not off the hook for collecting tax on a claimed capital improvement unless it holds a properly completed Certificate of Capital Improvement (Form ST-124) from the customer.

Common questions

Q: I install canopies/kiosks at gas stations. Do I charge my customer sales tax?
A: If it's a capital improvement (typically when you install for the landowner), you pay tax on materials but don't charge the customer. If it's not (typically a tenant's trade fixture), you charge tax on the whole job and buy materials for resale with Form ST-120.1.

Q: My customer is a tenant. Is it automatically taxable?
A: Presumptively yes — tenant installations are usually removable trade fixtures. But lease terms vesting title in the landlord (as in Flah's of Syracuse) can make it a capital improvement instead.

Q: What do I need to stop collecting tax on a capital-improvement job?
A: A properly completed Certificate of Capital Improvement (Form ST-124) from your customer (§ 1132(c); 20 NYCRR § 532.4(f)).

Citations and references

Statutes:

• Tax Law § 1101(b)(9) — three-part definition of "capital improvement" (added by Ch. 471, Laws of 1981)
• Tax Law § 1101(b)(4) — resale exclusion
• Tax Law § 1105(a) — tax on retail sales of tangible personal property
• Tax Law § 1105(c)(3) and § 1105(c)(5) — taxable installation/servicing services, with the capital-improvement carve-out at § 1105(c)(3)(iii)
• Tax Law § 1132(c) — a proper certificate relieves the vendor of the duty to collect tax

Regulations:

• 20 NYCRR § 527.7(a)(3) — capital improvement regulation
• 20 NYCRR § 532.4(f) — Certificate of Capital Improvement (Form ST-124)

Authority cited:

• Potter v. Cromwell, 40 N.Y. 287 (common-law fixture test)
• Tifft v. Horton, 53 N.Y. 377 (owner vs. tenant presumptions)
• Matter of City of New York, 192 N.Y. 295; 100 Park Avenue v. Boyland, 144 N.Y.S.2d 88, aff'd 309 N.Y. 685
• Marnall Steel Products, Inc. v. Bernard, 147 Misc. 314, aff'd 241 A.D. 616 (greasing pit — removable trade fixture)
• Crater's Wharf v. Valvoline Oil Co., 204 App. Div. 840 (garage/sheds/storage pits — removable)
• Bernheimer v. Adams, 70 App. Div. 114, aff'd 175 N.Y. 472 (corrugated-iron awning — removable)
• Antonowsky v. State of New York, 14 Misc. 2d 689
• Matter of Flah's of Syracuse, Inc., State Tax Commission (Nov. 28, 1980), TSB-H-81(9)S (lease vesting title → capital improvement)
• Office Alarm v. Tax Comm., 58 A.D.2d 162
• Matter of Mr. & Mrs. Joseph B. Jarentowitz, State Tax Commission (June 18, 1982), TSB-H-82(49)S

Forms referenced:

• Form ST-120.1 — Contractor Exempt Purchase Certificate
• Form ST-124 — Certificate of Capital Improvement

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a82_32s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-82(32)S
Sales Tax
September 6, 1982

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810721A

On July 21, 1981, a Petition for Advisory Opinion was received from Beaman Corporation,
800 West Smith St., P. O. Box 21687, Greensboro, North Carolina 27420.
The issue raised is whether certain canopies and kiosks installed by Petitioner constitute
capital improvements for purposes of the sales tax imposed under Article 28 of the Tax Law.
Petitioner is a contractor primarily engaged in constructing service stations for oil companies.
Canopies and kiosks are two of the structures included in these service stations. Canopies are roof­
like structures overhanging the service areas of the stations. They are up to thirty feet wide and
ninety feet long. Kiosks serve as the offices for service station cashiers, rest rooms and storage
facilities. Both types of structures are sunk in concrete footings. To remove these structures,
jackhammers must be used to break up the concrete in which the structures are imbedded.
The term "capital improvement" is defined in section 1101(b)(9) of the Tax Law as follows:
(9)

Capital improvement. An addition or alteration to real
property which:

(i)

Substantially adds to the value of the real property, or
appreciably prolongs the useful life of the real property; and

(ii)

Becomes part of the real property or is permanently affixed to
the real property so that removal would cause material
damage to the property or article itself; and

(iii)

Is intended to become a permanent installation.

This provision was enacted by Chapter 471 of the Laws of 1981, effective July 7, 1981. However,
such provision represents a legislative enactment of the substance of the Tax Commission's
previously promulgated regulation on the subject, located at 20 NYCRR 527.7(a)(3).
In the present instance, the structures in question substantially add to the value of the real
property to which they are affixed, thus satisfying the first of the three enumerated criteria.

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

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Sales Tax
September 6, 1982

In those cases where improvements of the type here under discussion are made by the owner
of the underlying real property, it is clear that the second statutory requirement is also satisfied, in
that the kiosk or canopy in question "becomes part of the real property." This conclusion derives
from an application of the common law's tripartite test for determining when personalty has been so
connected with real property as to come to partake of the nature of the latter. This test was early set
forth in Potter v. Cromwell, 40 N.Y. 287, as follows:
". . .the true criterion of a fixture is the united application of
three requisites: First. Actual annexation to the realty, or something
appurtenant thereto. Second. Application to the use or purpose to
which that part of the realty with which it is connected is appropriated.
Third. The intention of the party making the annexation, to make a
permanent accession to the freehold." Id., at 297.
It is clear in the instant matter that the kiosks and canopies are actually annexed to the underlying
real property, that they are dedicated to the use to which such real property is being put (viz., use as
a service station) and a finding of intended permanence arises from the mode of annexation, the
relationship to the real property of the party making the addition and the apparent purpose for which
the annexation is made. Finally, implicit in this finding to the effect that the annexed kiosks and
canopies constitute fixtures, and thus part of the real property, is the finding that they are intended
to constitute permanent installations, thus satisfying the third criterion set forth in Tax Law, §
1101(b)(9).
As indicated above, where an owner of real property makes an improvement to such real
property of the type here described, such installation is presumably a permanent one. However,
where the installation is made by a tenant, a different presumption arises. This difference is well
described in a leading case in the law of fixtures, Tifft et al v. Horton et al, 53 NY 377:
The law makes a presumption in the case of any one making such
annexation, and it is different as the interest of the person in the land
is different, that is, whether it is temporary or permanent. The law
presumes that because the interest of a tenant in the land is temporary,
that he affixes for himself, with a view to his own enjoyment during
his term, and not to enhance the value of the estate; hence, it permits
annexations made by him to be detached during his term, if done
without injury to the freehold, and in agreement with known usages.
The law presumes that because the interest of the vendor of real
estate, who is the owner of it, has been permanent, that he has made
annexations, for himself to be sure, but with a view to a lasting
enjoyment of his estate, and for its continued enhancement in value.
Id., at 382.
The presumptive removability of tenant-installed fixtures is particularly strong with regard to trade
fixtures. See in this regard Matter of City of New York, 192 N.Y. 295; 100 Park Avenue v. Boyland,
144 NYS 2d 88, aff'd 309 NY 685. Trade fixtures may be defined as articles of personal property
which a tenant places upon or annexes to leased property for the purpose of carrying on his trade or

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September 6, 1982

business. 23 NY Jur., Fixtures § 29. These are generally considered not to become part of the realty,
because not intended as a permanent installation, and removable by the tenant, where such removal
would not cause substantial injury to the real property to which they are attached. People v. Boyland,
supra, at 93; Antonowsky v. State of New York, 14 Misc. 2d 689. Accordingly, the installation of
such removable trade fixtures would not constitute the rendering of a capital improvement because
of the failure in such cases to satisfy the requirement of intended permanence.
The structures here under consideration, where installed by a tenant of real property, will
generally constitute trade fixtures of the type just described. This finding is supported by a
consideration of a number of judicial decisions relating to trade fixtures. In Marnall Steel Products,
Inc. v. Bernard, 147 Misc. 314, aff'd 241 AD 616, the court held to be a removable trade fixture a
greasing pit installed at a service station. This greasing pit consisted of a metal container placed in
an excavation some 16' x 20' x 5' at the bottom of which was an additional excavation containing a
metal tank resting on concrete blocks laid upon the ground. In Crater's Wharf v. Valvoline Oil Co.,
204 App. Div. 840, the court reached a similar conclusion with respect to the following structures,
among others' a building used as a garage and shed, with stone foundation and concrete floor; a shed
built upon a stone foundation containing a concrete structure enclosing a gasoline tank; and a
gasoline storage pit and kerosene storage pit, containing tanks enclosed in stone walls. As the court
put it, "The premises in question, at the time of the letting, consisted of a rough, unoccupied lot, with
no building thereon, except a bulkhead. The buildings and structures removed were all erected for
the purposes of the defendant's business, and not for the benefit of the landlord. The removal left the
premises in substantially the same condition as at the time of the original letting and the
presumptions are in favor of the tenant." Finally, in Bernheimer v. Adams, 70 App. Div. 114, aff'd
175 NY 472, the court held to be removable as a trade fixture an awning made of corrugated iron
five or six feet in width and extending some seventy-five feet along the side of a brick building,
connected in such a manner that removal would cause some small damage to certain bricks in the
wall, and possibly requiring the replacement of these bricks. Cf., Matter of Mr. & Mrs. Joseph B.
Jarentowitz, State Tax Commission, June 18, 1982, TSB-H-82(49)S.
Presumptions, of course, may be entirely done away with by the facts. Tifft, supra, at 383.
Thus, in Flah's of Syracuse, _ AD 2d _(1982), wherein a tenant's installation of certain trade
fixtures was held to constitute a capital improvement, the presumption of impermanence was
negatived by the existence of explicit provisions included in the applicable leases to the effect that
"title to improvements . . . was to immediately vest in the landlord, and that the improvements were
to become a part of the premises and remain in the premises." See Matter of Flah's of Syracuse, Inc.,
State Tax Commission, November 28, 1980, TSB-H-81(9)S. Cf., Office Alarm v. Tax Comm., 58
AD 2d 162.
Accordingly, where Petitioner installs the kiosks and canopies in question for the owner of
the real property upon which they are placed, the installation presumably constitutes a capital
improvement. Where Petitioner makes such an installation for a tenant of real property, the
installation would presumably not constitute a capital improvement. Where Petitioner performs a

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September 6, 1982

capital improvement it must pay sales tax on its purchase of materials, but is not required to collect
tax on its charge to its customer. Tax Law, §§ 1101(b)(4), 1105(c)(3)(iii), 1105(c)(5); 20 NYCRR
527.7(a)(3). Where the Petitioner's installation of tangible personal property does not constitute the
performance of a capital improvement, Petitioner's charges to its customers, both for any tangible
personal property sold and for the service of installation, are subject to tax. Tax Law, §§ 1105(a),
1105(c)(3). In such instance Petitioner need not pay tax on the tangible personal property purchased
by it for resale to its customer, upon presentation to its vendor of a properly completed Contractor
Exempt Purchase Certificate (Form ST-120.1). Finally, it is to be noted that in order for Petitioner
to be relieved of its obligation to collect sales tax where its customer asserts that the installation in
question constitutes a capital improvement, Petitioner must take from its customer a properly
completed Certificate of Capital Improvement (Form ST-124). Tax Law, § 1132(c); 20 NYCRR
532.4(f).

DATED: August 19, 1982

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau